Listen to this article 3 min
The massive explosion in AI or large language models has driven up demand for computing power and graphics processing units (GPUs).
This has led to some startups taking on massive amounts of debt to invest in attaining these highly valuable GPUs in deals often backed by GPUs they already own.
The latest example is Crusoe Energy Systems LLC, a San Francisco startup working on eco-friendly ways to power cloud computing centers. The company raised $200 million in debt for the purchase of GPUs from Upper90, a VC firm specializing in asset-backed debt deals.
Crusoe also announced that it had significantly increased its computing capacity thanks to previous purchases of NVIDIA H100 and A100 Tensor Core GPUs. The company had raised $350 million in a series C equity round last year led by G2 Venture Partners.
So the startup used its existing hoard of GPUs as collateral to get debt to purchase even more GPUs. Such is the state of the computer economy that despite historically high interest rates taking on this amount of debt is seen as prudent in order to purchase this much-sought-after hardware.
"We are very familiar as a business with doing asset-backed financing," said Chase Lochmiller, CEO and co-founder of Crusoe. "When you look at things like our power generation infrastructure, a lot of that was financed through asset-backed loans where we have a two megawatt reciprocating engine that serves as collateral for a debt facility that we have with Generate Capital, which is headquartered in San Francisco as well."
Crusoe claims its data centers are eco-friendly because they use gas flares to power their data centers, and says it reduces 60% more emissions than it produces through operations. Essentially gas-fired power plants and landfills must already let off a certain amount of gas in the form of flaring as part of daily operation and Crusoe sets out to harness the typically wasted energy for its own purposes. The company uses a distributed modular network across different plant to build their cloud network that is 200MW in size.
While the company specializes in offering computing to power AI models, the cloud network can also be used to mine cryptocurrencies and for other compute-intensive activities.
Last year, I talked to a similar company based in the Bay Area, Vespene Energy, that was using natural gas flares at landfills to mine bitcoin. As a result of the massive hype around AI and downfall of crypto prices, many of these data centers that have been amassing GPUs have pivoted from crypto mining to powering AI LLMs.
Crusoe's debt financing deal mirrors a similar, but much larger, one by Coreweave, a NJ-based company that raised $2.3 billion in debt to buy GPUs collateralized by more Nvidia chips. The move spurred one outlet to declare that Nvidia GPUs have become a quasi-currency for startups.
"I don't think this is a breakthrough, revolutionary way of financing growth — it's been a playbook for a long period of time in terms of businesses that need more hardware and need more infrastructure to scale up their footprint and profitability," Lochmiller said. "I think it's all a matter of being able to do it smartly and making sure that we're not taking on too much leverage."